Many argue that ¡°too low for too long" interest rates, aimed at stimulating the economy in the short run, might lead to low productivity and threaten financial stability in the medium run. Low interest rates not only lead to more borrowing, but they also affect the quality of that borrowing via allocation of credit across firms. Thus, expansionary monetary policy might bring higher credit growth, investment, and output today, at the expanse of a corporate debt overhang with zombie firms, and a higher probability of financial crises, hampering investment and growth in the future.
Recent analysis of a new confidential supervisory firm-bank matched data set documents new facts about the credit market. Does monetary policy work the same way for SMEs and large listed firms in terms of credit borrowed and interest rate paid? Do firms and banks with high or low leverage respond similarly to monetary policy surprises? Do different types of collateral pledged by different firms have any effect? These questions and related policy implications will be discussed during this session.
Franziska Lieselotte Ohnsorge is Manager of the Prospects Group in the Equitable Growth, Finance and Institutions (EFI) Practice Group at the World Bank. Prior to joining the World Bank, Franziska Lieselotte Ohnsorge worked in the Office of the Chief Economist of the European Bank for Reconstruction and Development on regional surveillance, forecasting, and financial sector policy issues. She was previously at the International Monetary Fund, covering a range of Asian, European and Central Asian economies. She has published on a variety of topics.
Sandeep Mahajan is a Practice Manager in the World Bank¡¯s Macroeconomic, Trade, and Investment Global Practice, responsible for the Europe and Central Asia region. He has held various positions at the World Bank, including adviser to the Managing Director and Senior Vice President for Operations, Lead Economist for Vietnam and Lead Economist for South Africa. Sandeep has led the Bank¡¯s policy dialogue with client countries on a broad range of economic management issues, managed large budget support operations, and undertaken substantial and innovative analytical work on several challenging development issues. His research interests and publications cover economic growth, macroeconomics, financial & private sector development, and trade policy.
